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Social Security will be there for you, millennials

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(Bloomberg) — Social Security is like a Rorschach Test. Some look into the federal retirement program’s future and see nothing but doom and gloom: It is bankrupt, economically untenable and fiscally unsustainable. Others see a solid institution — the strongest cords of America’s safety net — that just needs a few tweaks, maybe even an expansion.

The Social Security Administration on Wednesday released its annual trustees’ report, giving us a look at its finances. The trustees, including Treasury Secretary Jacob Lew, estimate that the Social Security trust fund will run out of money in 2034. But don’t expect this to settle any debates.

Your perspective on Social Security may depend on how far you are from retirement. While older Americans can’t imagine a world without Social Security, most millennials have become fatalistic about it — they assume the benefit will disappear before they reach retirement (if they are ever able to retire). Only 6 percent of them expect current benefits to be there when they hit 67 years old — the full benefit age for those born in 1960 or later — and 51 percent expect the program to go entirely extinct, according to a 2014 Pew Research Center survey.

Experts disagree about almost everything on Social Security. They largely concur that, in this case, millennials are dead wrong. Under the current estimate, 2034 is the year when Social Security can no longer pay full benefits (unless the government steps in and does something about it). But the program should still be able to pay three-quarters of benefits at that time and for decades afterward, backed by a steady stream of payroll taxes from future generations.

Future administrations could move to repeal the 81-year-old Social Security Act and spend that money on something else. But that will probably continue to amount to political suicide down the line.

Among the elderly, 53 percent of married couples get more than half their income from the program. For the unmarried elderly, it’s even more critical: Some 74 percent get more than half their income, and 47 percent get more than 90 percent of their income from the program.

Any move to scale back the program (let alone eliminate it) would come as Americans become increasingly dependent on it to survive. The disappearance of defined-benefit pensions and the inadequacy and unreliability of 401(k) accounts, mean that more retirees, not fewer, are likely to need Social Security in the coming years.

Finally, cutting benefits is wildly unpopular, even among millennials who never expect to get them. Two-thirds of all Americans, and 61 percent of millennials, favored either keeping benefits the same or expanding them, according to the Pew survey. Since then, U.S. presidential candidate Bernie Sanders changed the paradigm by running a millennial-fueled campaign promising to expand Social Security by boosting monthly checks an average of $65. The Vermont senator’s rival for the Democratic nomination, Hillary Clinton, proposes a more modest expansion, while Republican Donald Trump says he wants to leave Social Security untouched. 

That doesn’t mean the debate is settled, by any means. The topic can spark warfare among retirement experts. Look, for example, at the open disagreement among the authors of last year’s surprise bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security.”

Laurence Kotlikoff, a Boston University professor and economist, wrote in the latest edition of the book: “Radical change in our Social Security system is inevitable for the simple reason that the system is broke–indeed, in worse fiscal shape than Detroit’s pensions when that city declared bankruptcy. 

But in the same chapter, co-author Paul Solman dismissed those concerns, accusing Kotlikoff of “irresponsible hyperbole, animus and undue pessimism.” Social Security is not any more unsustainable than all the other things that the deficit-plagued federal government does. “Why single out Social Security?” Solman wrote, suggesting several minor benefit cuts or tax increases that could ensure that Social Security’s trust fund lasts longer.

Solman and Kotlikoff’s differences are partly theoretical. Kotlikoff insists on calculating Social Security’s true cost over an “infinite” time frame, which he says is the only way to see how the program shifts the burden on future generations. Solman says it’s ridiculous to predict so far out in the future, when so much could change in the economy, the labor market and government finances.

One thing they agree on, however. Addressing young people, Solman wrote: “You will get yours — or at the very least, you’ll get most of it.”

See also:

Millennials: The debt-averse, insurance-buying generation

Why advisors should reach millennial “HENRYs”

Generation worried: Gen Xers, millennials report anxiety about retirement savings

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